Obama on For-Profits

08/26/2013

Inside Higher Ed. August 26, 2013. The Obama administration has had no shortage of spats (and some out-and-out warfare) with the for-profit sector of higher education. But typically administration officials outside the Oval Office have been the ones directly expressing views on the sector.

On Friday, however, in a question-and-answer session at the State University of New York at Binghamton, a doctoral student at (nonprofit) Syracuse University asked the president about the sector and for-profit colleges that the student called "predatory." The president responded with some language that didn't go over well with officials in for-profit higher education.

He agreed that some for-profit colleges are taking advantage of students (and in particular veterans), and said that he believed that these abuses were more prevalent in the for-profit than the nonprofit sector.

In his answer, Obama stressed that there was no reason to believe that for-profit status is inherently wrong. "For-profit institutions in a lot of sectors of our lives obviously [are] the cornerstone of our economy. And we want to encourage entrepreneurship and new ideas and new approaches and new ways of doing things. So I’m not against for-profit institutions, generally." (A full transcript of the event may be found here.)

But he said that the questioner was correct in noting problems in higher education. "[T]here have been some schools that are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates. Students aren’t getting what they need to be prepared for a particular field. They get out of these for-profit schools loaded down with enormous debt. They can’t find a job. They default. The taxpayer ends up holding the bag. Their credit is ruined, and the for-profit institution is making out like a bandit. That’s a problem."

Continuing, Obama noted a particular concern about students who are veterans or in the military, saying that "they’ve been preyed upon very badly by some of these for-profit institutions.... Because what happened was these for-profit schools saw this Post-9/11 GI Bill, that there was a whole bunch of money that the federal government was committed to making sure that our veterans got a good education, and they started advertising to these young people, signing them up, getting them to take a bunch of loans, but they weren’t delivering a good product."

Then President Obama made a pitch that the best way to deal with problems in the sector would be to adopt the ratings system he proposed last week for all of higher education, in which institutions with similar missions would be evaluated on the basis of affordability, completion rates and graduates' income -- and those attending better rated institutions would receive larger Pell Grants and more favorable terms of student loans.

"[I]f we can define some basic parameters of what’s a good value, then it will allow us more effectively to police schools whether they're for-profit or non-for-profit -- because there are some non-for-profit schools, traditional schools that have higher default rates among their graduates than graduation rates -- and be able to say to them, look, either you guys step up and improve, or you’re not going to benefit from federal dollars."

That line draw applause at Binghamton and is in many ways consistent with what for-profit higher ed leaders have been saying for some time -- that they are willing to be judged as long as the rest of higher education is similarly judged.

But in words that didn't go over with for-profit leaders, Obama also said that not all sectors are equal when it comes to the problems he was discussing. "So there are probably more problems in the for-profit sector on this than there are in the traditional non-for-profit colleges, universities and technical schools, but it’s a problem across the board," Obama said. "And the way to solve it is to make sure that we’ve got ways to measure what’s happening and we can weed out some of the folks that are engaging in bad practices."

Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, which lobbies on behalf of for-profit colleges, said via e-mail that it was inconsistent for President Obama to argue that all colleges should be evaluated under a similar system while the Education Department is proceeding withnegotiations over "gainful employment" regulations that would apply only to vocational programs at for-profit colleges and some nonprofit institutions.

"There is an inherent conflict with what the president and the Department of Education are trying to do. On one hand they mention the importance of developing and implementing these long-term reforms for all postsecondary institutions, but then they continue to aggressively pursue negotiated rulemaking aimed at only a select number of institutions," Gunderson said. "We firmly believe that to do this process right, the department should suspend negotiated rulemaking and appropriately focus on the president's proposal. That is how we will create meaningful change that puts the interests and outcomes of students first."

Andrew Rosen, chairman and CEO of Kaplan, Inc., said he was encouraged by the president's plan for a rating system. But he called for it to be a fair playing field.

"All higher education institutions should be evaluated based on their performance relative to schools with similar student populations, so we can understand the true value they deliver," Rosen said in a written statement. "Doing so will encourage excellence in serving students of all demographics."